DTCC Announces ETFs with Bitcoin Exposure to Hold Zero Collateral Value for Loans

The financial services behemoth DTCC has unequivocally stated its stance: it will not allocate any collateral to exchange-traded funds (ETFs) with exposure to Bitcoin or cryptocurrencies, nor will it extend any loans against them.

DTCC Giving A Big Blow to Bitcoin ETFs?

Starting April 30, 2024, the Depository Trust & Clearing Corporation (DTCC) will enact amendments to collateral values for select securities as part of its annual line-of-credit facility renewal. These modifications could impact position values within the Collateral Monitor.

DTCC announced that effective immediately, no collateral value will be assigned to Exchange-Traded Funds (ETFs) or similar investment instruments featuring Bitcoin or other cryptocurrencies as underlying assets. Consequently, these securities will face a 100% haircut.

However, popular cryptocurrency enthusiast K.O. Kryptowaluty explained that this would be applicable only to the inter-entity settlement in the Line of Credit (LOC) system.

A Line of Credit serves as a financial tool enabling market participants to access borrowed funds for short-term transaction financing or to address liquidity requirements. The utilization of cryptocurrency Exchange-Traded Funds (ETFs) for lending purposes and as collateral in brokerage activities remains unaffected, remaining subject to the risk tolerance of individual brokers.

The DTC system, or Depository Trust Company, is a key component of the financial infrastructure of the United States, acting as the central securities depository. DTC is part of a larger organization called the Depository Trust & Clearing Corporation (DTCC)

what you write…

— K.O Kryptowaluty (@KO_Kryptowaluty) April 27, 2024

The launch of spot Bitcoin ETFs has led to growing institutional interest in the investment product. Within three months of launch, all the U.S. Bitcoin ETFs have collectively garnered more than $12.5 billion in assets under management (AUM).

BTC ETF Inflows Are Decelerating

After a strong start to the launch of Bitcoin ETFs, the overall inflows have been on a decelerating trajectory in recent weeks. Over the last three days, these spot Bitcoin ETFs have witnessed strong outflows, reported by several ETF issuers.

In the latest data reported on April 27, the total net outflow of Bitcoin spot ETFs amounted to $83.6147 million. Grayscale’s ETF, GBTC, experienced a significant single-day outflow of $82.4197 million. Currently, the historical net outflow of GBTC stands at a substantial $17.185 billion, as per data from Farside investors.

While DTCC has taken a stand against crypto ETFs, the same is not true for other traditional players. 100-year-old bank BNY Melon recently stated that it is seeking exposure to Bitcoin ETFs. The recent submission of BNY Mellon’s Form 13F to the Securities and Exchange Commission has garnered significant attention across the global crypto community.

The bank’s investments in BlackRock and Grayscale Bitcoin ETFs signify not only local occurrences but also serve as a global indication of the growing acknowledgment and integration of cryptocurrencies within the traditional financial sector.